The 2022 performance slightly exceeded our expectations.

The company announced its results in 2022: income 1.352 billion yuan, year-on-year-13.5%; return-to-mother net profit 109 million yuan, year-on-year-5.5%; deduction of non-return-to-mother net profit 89 million yuan,-12.7%. The non-recurrent profit and loss effects, such as falling costs and government subsidies, slightly exceeded our expectations.

In each quarter, the company's 1Q-4Q22 realized revenue of 2.78, 342, 310 and 422 million yuan respectively. The year-on-year decline of 13.7%, 14.3%, 10.7%, 0.13%, 0.34, 0.17 / 46 million yuan, respectively, and the year-on-year change of + 4.3%, 25.6%, 17.2%, 21.5% respectively.

Trend of development

Under the influence of the epidemic and overseas demand, income growth is under pressure. The company's revenue fell 13.5% in 2022 compared with the same period last year. On the one hand, the domestic epidemic affected downstream demand, on the other hand, overseas inflation, conflict between Russia and Ukraine and other factors affected export demand. In 2022, sales / exports fell 8.2% to 1.237 billion yuan respectively compared with the same period last year.

Sub-business point of view, 1) indoor fitness equipment: 22 years income of 818 million yuan, year-on-year-15.7%, mainly affected by the slowdown of downstream gym customers. 2) Outdoor fitness equipment: the 22-year income was 202 million yuan, down 16.7% from the same period last year. We believe that it is mainly because government and enterprise units slow down construction expenditure such as recreation and entertainment under the pressure of the epidemic. 3) display shelves: revenue in 22 years was 304 million yuan, down 1.8% from the same period last year.

The price of raw materials fell and profits picked up somewhat. The company's 2022 gross profit margin increased to 29.8% year-on-year, of which 4Q22 gross profit margin increased 2.6ppt to 32.5% year-on-year, which we believe is mainly due to the decline in raw material prices and the increase in the proportion of domestic sales. Thanks to higher gross margins, the company's 2022 net homing margin rose 0.7ppt to 8.1 per cent year-on-year.

The company continues to promote the upgrading of products, channels and manufacturing, and pays attention to the follow-up results. On the product side, the company gathers resources to create best-selling items, while actively laying out the fitness platform of "hardware + software + course content + professional fitness trainer" to create differentiated products and services. At the channel end, deepen the dealer management system, classify and break through B-end customers such as enterprises, campuses, etc., while offline stores are transformed and upgraded, and online channels continue to expand new platforms. Manufacturing side, lean supply chain and production management, digitalization to improve production efficiency. We believe that the medium-and long-term sports and fitness industry is expected to maintain sustained growth with the support of national policies, and demand is expected to continue to pick up under the recovery of short-term consumption, superimposed with a low base in 2022, and the company's performance is expected to improve significantly in 2023. It is recommended to actively pay attention to the progress of upgrading the company's products and channels.

Profit forecast and valuation

Considering the decline in costs and the company's cost reduction and efficiency, the company will increase its EPS by 15% to 0.33 yuan in 2023, and introduce a profit forecast for 2024. We expect the company's EPS to grow by 21% year-on-year to 0.41 yuan in 2024. Maintain an industry rating that outperforms.

Based on the adjustment of earnings forecast and taking into account the changes in market risk preference, the target price will be raised by 5% to 13.00 yuan, corresponding to 39x32 times Pmax E in 2024, which has 23% upward space compared with the current stock price.

Risk

The channel development is not as expected; the price of raw materials fluctuates greatly.